Does IURC help South Bend water customers?

Whether dropping out of oversight is good or not debated.

Whether dropping out of oversight is good or not debated.

August 03, 2008|By JAMIE LOO Tribune Staff Writer

This story originally appeared in the South Bend Tribune on Aug. 3. SOUTH BEND -- Other cities that have opted out of the Indiana Utility Regulatory Commission for their water utilities said the move is a good idea. The Common Council voted to place a referendum on the November ballot, asking residents if the city should remain under IURC jurisdiction. City officials have said leaving the IURC will save South Bend time and thousands of dollars in consulting fees related to rate cases. Danielle Dravet, spokesman for the IURC, said the commission respects the right of utilities to withdraw from its jurisdiction. What is the IURC? The IURC is a five-member commission appointed by the governor that reviews utility rate increases. The commission members are appointed to staggered four-year terms, with three commissioners representing the governor's party and two commissioners of the other party. The commission has a staff of 75 people including engineers, accountants, attorneys and economists that reviews cases and makes recommendations to commissioners. According to its Web site, the IURC is "an advocate of neither the public nor the utilities. The IURC is required by state statute to make decisions that balance the interests of all parties to ensure the utilities provide adequate and reliable service at reasonable prices." When a public utility under IURC jurisdiction wants to raise rates, it has to be approved on a local level and by the IURC. The utilities prepare a rate case, which includes legal, financial and engineering costs, such as experts to testify at hearings. Cost of service studies and fees associated with IURC proceedings also are included. Dravet said a separate state agency, the Office of Utility Consumer Counselor, represents ratepayers and presents its own findings and recommendations to the IURC. A public hearing may be held in the utility's service territory and after all evidence in the case is presented the utility can present rebuttal testimony. The IURC can then approve, reject, or modify the utility's rate request. Dravet said this process ensures that the commission's rulings "are cost-based and justified." Effects of withdrawing Since the last time South Bend voted on withdrawing water utilities from the IURC in 1996, 80 cities and towns have left IURC jurisdiction. Of the 388 water utilities in the state that are eligible, a total of 345 water utilities have opted out of IURC. The majority of Indiana's second class cities are still under IURC jurisdiction. Voters in Lafayette also will be voting this November on whether to withdraw its water utilities from the IURC. Local officials in the cities and towns who have opted out of IURC for their water utilities say the move has paid off. LaPorte opted out of the IURC in 1993. LaPorte water department director Todd Taylor said the city had been planning large water infrastructure improvements, including renovations for two of its treatment plants. The city council has to approve any rate increases, he said, so going to the IURC seemed redundant. "We didn't feel we needed an additional body to approve it," he said. He said residents understood water treatment plants needed upgrading and there was little negative reaction to opting out of IURC. After a rate increase about a year later, water rates weren't raised again until 2005. Taylor said it was a graduated increase of 10 percent over two years. Taylor said one of the hidden downsides to being part of the IURC is that municipalities may not raise rates when they need to because of rate case costs, which could lead to larger increases later. Opting out of the IURC gives municipalities more flexibility to do gradual increases, Taylor said, which is better for many consumers. He compared it going to the grocery store to buy milk and watching prices increase slowly over a few years, versus showing up at the store one day to see milk prices go up by whole dollars. Goshen utilities superintendent Doug Perry said leaving IURC jurisdiction for its water utilities in 2001 has been good for the city. Perry said rate cases used to cost the city at least $60,000. The city had rate increases in 2004, 2005 and 2006. Munster left the IURC in September 2005. Munster clerk-treasurer Dave Shafer said water rates went up 33 percent the next year, but it was the first rate change in 12 years. Leaving the IURC saved the city about $50,000 in rate case costs, he said, including cost of service studies. Municipal utilities operate on fees collected, Taylor said, which benefits consumers in the long run because the money goes toward improving service. The city doesn't gain profits from raising rates, he said, and cities legally still must prove the rate increases are needed to their local governing bodies. Taylor said there's no reason for people to be skeptical of municipally-owned utilities. "We're all in here trying to provide the best water system possible, and ultimately we respect our customers," Taylor said. Perry echoed Taylor and said private utilities answer to shareholders, but municipal utilities answer to councils and taxpayers. Although many municipalities have withdrawn from the IURC for water utilities, Taylor, Perry and Shafer all said the commission continues to play an important role in regulating private utilities, such as gas and electric companies. Without the IURC, there would be no oversight of these private utilities. All three said opting out of the IURC can be a good thing and stressed it's up to communities to decide what's best for them. They said local councils know what's best for their residents. Shafer said state government and taxpayers have been asking local governments to reduce spending. Leaving IURC jurisdiction to save money is an option worth exploring, he said. Although municipal water utilities are supported by user fees and not property taxes, Shafer said, it's still part of government and every dollar that can be saved makes a difference. Oversight Water rate increases will always be needed for infrastructure improvements, but the heart of IURC jurisdiction lies with what oversight communities are comfortable with. State Rep. Craig Fry, D-Mishawaka, said utilities withdrawing from the IURC probably isn't a good thing for consumers. "Somebody has to make sure some bureaucrat doesn't raise rates whenever they want," he said. Fry said although he doesn't always agree with IURC actions, it's still a neutral board that serves an important role. "The bottom line is any time there's somebody watching government so they don't exploit the ratepayers, that's a good thing," Fry said. Sen. Ed Charbonneau, R-Valparaiso, who serves on the Senate Utilities and Regulatory Affairs committee, said the ability to opt out of the IURC has been part of state law for a long time now and many small communities have already withdrawn. Budgets are getting tighter and he said he "commends this Common Council and any council that is really looking at ways to save costs." State Rep. Ryan Dvorak, D-South Bend, said he can see both sides of the oversight issue. Municipal utilities do have more oversight because ratepayers hold their councils accountable for raising rates, he said. But Dvorak said IURC provides another layer of oversight and due process for residents to appeal water rates. For example, Clay Township residents intervened in a city rate case in 2005, Dvorak said. "The alternative is going to court if the IURC isn't there," he said. Fry, Charbonneau, and Dvorak all agreed the IURC's oversight of private utilities is necessary. South Bend officials and others have cited time and cost as reasons to opt out of the IURC, which Dvorak said he understands. As a member of the House Commerce Energy and Utilities Committee, Dvorak said the committee has tried to get more money for the IURC so the agency can process cases more efficiently. Dvorak said delays are more tied to administrative law requirements than IURC staffing. For example, the number of consultants involved in the rate case process may not all be necessary, he said.